Japan’s lawmakers have the opportunity to show how strong their support is for boosting renewable power supply to replace nuclear reactors with the passage of a green energy subsidy scheme likely within days.

The country is struggling to overhaul its energy policies after the March quake and tsunami triggered a nuclear disaster that shattered the public’s confidence in the safety of the atomic industry and delayed the restart of idled plants. Costly oil and gas imports have soared.

There is no quick remedy to replace lost capacity. But lawmakers say a national scheme starting next year that rewards solar, wind power, biomass and other green energy investments is part of the solution.

Parliament is expected to pass the bill by mid-next week but faces some obstacles that could lead to its dilution or even derail its passage. Political disarray over post-disaster energy policy, a mandatory review of the scheme after 3 years and a fragmented grid are all potential pitfalls that could impact the effectiveness of the bill, analysts say.

A key concern is the level of subsidized power pricing for different types of green energy. This won’t be known for several months. Another is Japan’s revolving-door governments, with the current government heavily criticized for its handling of the quake and nuclear crisis.

“Investors say they find no institutional risk in investing in the renewable energy sector in Europe, but they say there is such a risk in Japan given uncertainty of the scheme’s prospects and there is also a risk in the country’s politics,” said Shinichiro Takiguchi, executive senior researcher at private think-tank Japan Research Institute.

The new laws will require utilities to buy any amount of electricity generated from solar, wind, biomass, geothermal and small-sized hydro power plant at preset rates for up to 20 years. The government has said it wants the feed-in tariff scheme to boost capacity of the five renewable energy types by more than 30,000 megawatts (MW) over a decade.

That would add over 12 percent to Japan’s total generation capacity before the nuclear disaster of 240,000 MW.

The cost paid by utilities is passed on to end users although the new laws, set to take effect on July 1, 2012, include special provisions to trim costs for residents in the quake-hit northeast and energy-intensive industries.

WILL THE PRICE BE RIGHT?

Lawmakers from the three main parties have thrown their support behind the scheme and say they want to ensure attractive pricing per kilowatt hour of new green power generation during the first three years to promote investment and lower the cost of solar panels and other equipment.

Ruling party lawmaker Yosuke Kondo told Reuters he expects the price for solar to start at 40 yen per kilowatt hour and 20 yen for wind. The price for solar could start with 37-38 yen if the prices of solar panels fall significantly by the time the system is launched, he added. A parliament-appointed panel will determine the pricing.

Takao Kashiwagi, professor of Tokyo Institute of Technology and a core member of the trade ministry’s renewable energy committee, thought 40 yen could cause a bubble of investment and said even 35 to 37 yen could drive solar capacity growth of about 3,000 MW a year in the first three years. That is about triple of solar panel shipments of 992 MW in Japan in 2010.

Companies that could benefit include mobile carrier Softbank, which wants to invest in solar power, solar panel makers such as Suntech Power, Showa Shell Sekiyu, Kyocera and Sharp, and wind power developers including Eurus Energy Holdings, a joint venture between Tokyo Electric Power Co and Toyota Tsusho Corp.

“I think 36-38 yen will be good enough,” said Yutaka Yamamoto, president of Suntech Power Japan.

A mandatory review after 3 years will make it hard to plan long-term investments because of fears the review could decide to abolish the scheme or replace it with something else.

“It takes 3 years minimum for wind power to get started and more than 10 years for geothermal power to get started. So, investors would not take the risk of a scheme which may disappear after three years of its launch,” Takiguchi said.

Japan’s fragmented grid also has limited ability to absorb massive capacity from solar and wind and is in need of investment, said Hirofumi Kawachi, senior analyst at Mizuho Investors Securities.

“The bills are half-baked. The investment plan is there but financing is lacking – there is no detailed roadmap to finance infrastructure investments needed to make the scheme work, such as setting up proper transmission networks,” he said.

“There is risk that stocks of solar and wind power plants will build up but won’t be utilized effectively,” he added. That would not hurt new suppliers given a preset return for a preset period but possibly clinch economic growth by boosting electricity bills for the sake of un-connected new facilities.

Households and businesses hardly buy power from outside their region nor choose sources of electricity because of the dominance in the power markets by the country’s 10 regional power companies.

The power industry has said they would be able to accept up to 10,000 MW of solar and 5,000 MW of wind based on the current grid infrastructure.

Japan presently has nearly 4,000 MW of solar, more than 2,000 MW of wind and about 500 MW of geothermal. Germany has more than 17,000 MW of installed solar capacity.

Green energy comprises about 10 percent of Japan’s total power generation. The government, working on a post-crisis energy policy, has yet to announce a new 2030 renewable energy target, which was set at 20 percent of generation previously.

“I think the scheme is one-sided as it is focused only on new power suppliers, taking advantage of end-users,” said Akihiro Sawa, executive senior fellow at the 21st Century Public Policy Institute and a former trade ministry official.

“We need another plan. We need policy steps to make conventional power companies realize how lucrative it is to invest in the sector and sell green electricity to users,” Sawa said.

(Additional reporting by Chikako Mogi in Tokyo and Leonora Walet in Hong Kong; Writing by David Fogarty, Editing by Simon Webb)

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